20 March 2018
TO: ASX Limited Singapore Exchange Securities Trading Limited
AusNet Services Investor Day Presentation Enclosed is an announcement made by AusNet Services which is provided for the information of AusNet Services Holdings Pty Ltd noteholders.
Claire Hamilton Company Secretary
20 March 2018
TO: ASX Limited Singapore Exchange Securities Trading Limited AusNet Services Investor Day Presentation
Please find attached the presentation to be made at the AusNet Services Investor Day today.
Claire Hamilton Company Secretary
2018 Investor Day
20 March 2018 Disclaimer
The AusNet Services Group (AusNet Services) comprises AusNet Services Ltd and its subsidiaries. The information in this presentation is not a prospectus, product disclosure statement or other offering document and does not constitute an offer, invitation or recommendation to subscribe for, retain or purchase any securities in AusNet Services. The information is an overview (in summary form) and does not purport to be complete or contain all the information necessary to make an investment decision. This presentation is not financial product advice and does not take into consideration the investment objectives, financial situation or particular needs of any particular person. You should consider the appropriateness of the information having regard to your individual objectives, financial situation (including taxation position) and needs, and seek independent professional advice. This presentation, and the information in this presentation, will not form the basis of any contract or commitment. This presentation has been prepared by AusNet Services on the information available. To the maximum extent permitted by law, no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions in this presentation and AusNet Services, its directors, officers, employees, agents and advisers disclaim all liability and responsibility (including for negligence) for any direct or indirect loss or damage which may be suffered by any recipient through use or reliance on anything contained in or omitted from this presentation. This presentation contains certain “forward-looking statements” and prospective financial information. These forward looking statements and information are based on the reasonably held beliefs of AusNet Services management as well as reasonable assumptions made by and information currently available to AusNet Services management, and are current only as of the date of this presentation. All statements other than statements of historical facts included in this presentation, including without limitation, statements regarding AusNet Services forecasts, business strategy, synergies, plans and objectives, are forward- looking statements. In addition, when used in this presentation, the words “guidance”, “forecast”, “estimate”, “expect”, “anticipated” and similar expressions are intended to identify forward looking statements. Such statements are subject to significant assumptions, risks and uncertainties, many of which are outside the control of AusNet Services and are not reliably predictable, which could cause actual results to differ materially, in terms of quantum and timing, from those described in this presentation. In receiving this presentation, you agree to the above restrictions and limitations.
2 Agenda
• Introduction • Safety • Corporate Strategy Overview • Regulated Energy Services • Energy Security Board • Australian Energy Regulator • Commercial Energy Services
3 HSEQ Critical Risk Program
4 Corporate Strategy Overview
Nino Ficca, Managing Director Megatrends are changing our industry
Today Future
Renewables backed by 86% thermal generation1 Decarbonisation dispatchable capacity and storage PV rooftop penetration 21%2 solutions PV saturation
Emerging technologies to allow New business Established platforms to integrate consumer trading (P2P) Behind the Meter generation with models smart home appliances emerging Early stage adoption of AI to optimise networks Active P2P trading by prosumers
New industry Financial institutions with established Global technology companies managing energy platforms, e.g. entrants utility holdings and Technology start- ups Amazon
Increasing Emerging solutions for distributed customer choice generation and storage Adoption of cheaper smart home and energy solutions and products Affordability
Market Opex benchmarking Policy-driven limitations on price intervention Political debate on energy prices growth Risk of asset interventions
(1) FY17 NEM generation (AER) (2) Penetration of suitable rooftops, April 2017, reneweconomy.com.au 6 Focus 2021 FY18 marks year two of our five year strategy
Build a portfolio of high performing and sustainable Regulated and Commercial Energy Services businesses
Grow Mooroolbark Mini Grid named joint contracted winner of the Clean Energy Council's energy Innovation Award infrastructure asset base to $1bn
Operate all Secured around three core $200m projects in networks in FY18 the top quartile of efficiency benchmarks
Grow specialist services to essential infrastructure operators Operating two out three networks in the top quartile of efficiency benchmarks Yackandandah community Mini Grid named winner of Banksia sustainability award
7 Strategic priorities
Transmission Distribution Gas CES
1. Strengthen our 1. Simplify and 1. Increase network 1. Grow contracted network in Western remove costs utilisation and asset base via utility Victoria to enable 2. Operationalise new establish a path scale connections, more generators to distributed energy forward for alternate renewable generation connect solutions fuel options infrastructure 2. Execute summer 3. Drive improvements 2. Focus on value and 2. Develop and grow preparedness to in customer efficiency to commercial, manage the portfolio satisfaction maintain top quartile industrial & position community asset 4. Improve reliability base and platform and safety 3. Influence uptake of gas and improve solutions customer 3. Participate in new satisfaction market investments and partnerships
8 DNSP RAB’s have increased, with utilisation highest in Victoria
DNSP RAB growth DNSP Utilisation (Index) (%)
350 80 NSW/ACT 70 300 VIC 60 SA
250 50 TAS NSW/ACT QLD TAS 40 200 VIC QLD 30 SA 150 20
10 100 0 0 2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016
Source: Victorian Electricity Network Businesses Submission to the ACCC Retail Electricity Pricing Inquiry, AER State of the Market Reports 2007–17 9 TNSP RAB’s have increased less, with utilisation amongst the highest in Victoria
TNSP RAB Growth TNSP Utilisation (Index) (%) 80 2.50
2.30 70 2.10
1.90 QLD 60 TAS SA 1.70 VIC
1.50 NSW/ACT 50 NSW/ACT TAS 1.30 QLD VIC 40 1.10 SA
0.90 30 0.70
0.50 20 2006 2008 2010 2012 2014 2016 2006 2008 2010 2012 2014 2016
Source: TNSP Economic Benchmarking RIN data (2006-16) and AER Draft TNSP Network Performance Report (13/02/2018), Partially As-incurred RAB. Index based on $real 2017 Closing RAB values 10 Network contribution to customer bills
Around one third of a typical customer bill in Breakdown of typical customer bill in AusNet Services AusNet Services electricity distribution Electricity Distribution Network (2018) network is comprised of network costs. Solar Feed in Tariff - 1% AST will be the first Australian utility business to trial a new process that places customers Distribution - 29% at the heart of developing our expenditure plans. Transmission - 3% The new process involves the establishment of a Customer Forum which will form part our Generation & Retail - 67% 2021-25 regulatory proposal, prior to AER submission.
Note: Chart is based on standard retail offers (NEE11) AGL, Energy Australia and Origin Energy and average annual consumption of 4299.25KWh (block 1 3912.32kWh and block 2 of 386.93kWh).
11 AST is focused on efficiency improvements
Opex partial factor productivity
Electricity Transmission Electricity Distribution (2017 estimate) Gas Distribution (2016) (2017 estimate)
AST 1.76 AST 2.4 Powercor 1.62 Citipower 1.55 Energex 1.16 JGN 2.3 TransGrid 1.49 SA Power Networks 1.14 ActewAGL 1.13 AGN Vic 2.1 United Energy 1.11 TasNetworks 1.27 AST (2017) 1.07 TasNetworks 1.00 Multinet 1.9 Jemena 0.97 Powerlink 0.90 Essential 0.96 AGN SA 1.3 Endeavour 0.94 Ergon ElectraNet 0.76 0.96 AST (2016) 0.86 AGN Qld 1.0 AusGrid 0.81
2016 data
Note: • Benchmarking data sourced from AER and AST modelling. • Gas Distribution benchmarking provided by Economic Insights. • Electricity Distribution benchmarking data uses 2016 data for Powercor, Citipower, Jemena, United Energy and Essential (2017 data unavailable). 12 Regulated revenues set for 3 years
As of 1 January 2018, around 85% of total revenues locked-in until 2020 under regulatory determinations
Current regulatory period
Beginning of new reset period
2017 2018 2019 2020 2021 2022 2023
Electricity Transmission
Electricity Distribution
Gas Distribution
13 Regulated Energy Services (RES)
Alistair Parker, EGM, RES To succeed our Regulated Businesses must adapt, be sustainably priced and influential advocates for our customers.
In Electricity In Electricity In Gas Distribution Transmission, this Distribution this means this means influencing means facilitating more reducing cost for our our customers to generation connection to customers and becoming continue to use gas as reduce costs to a more dynamic network we look for lower customers and improve to better integrate the emission alternative security of supply. distributed energy future. fuels. Putting Customers first
Why should we care? What is the outcome?
“I have choices and Simplification I am changing the way I buy energy. New technologies are attractive to me” Cost out
“I pay more for “When it goes energy than ever Better business wrong for me, outcomes you are causing before, I deserve me pain, and your attention!!” creating cost” A new way of thinking
Focus for prioritisation
…taking into account their current and future needs 16 Electricity Transmission
The Environment Our response
The generation mix is Strengthen our network in Western changing, the existing network Victoria to enable more generators to is not designed for this connect e.g. North West Loop expansion highlighted below in red
Supply/demand is constrained Embed learnings from the summer in Victoria preparedness to manage the portfolio
17 Preparing for the future in Transmission Advocate for improved regime AER ring-fencing guideline implemented
Develop AEMO engagement plan
Change Conduct work- Integration of renewable force planning North West connection capability review generation framework
Improve connection experience Assess Augmentation opportunities and build risks for TNSP role Map generator Establish connection Augmentation baseline journey design West Melbourne AER ring- network re-build complete fencing risk level Stakeholder Augmentation rules engagement feasibility Influence planning strategy decisions across the NEM Loy Yang Manage network Station complete risk in Latrobe Valley (replace Implement wind- West Vic Comms Continue CBD circuit breakers at monitoring and Loop Complete rebuilds (Richmond Yallourn and Loy dynamic line rating & West Melb re-build) Yang)
FY19 FY20 FY21+ Electricity Distribution
The Environment Our response
Underperforming in regulatory Simplify our business and remove benchmarking costs
Customers want more control Operationalise new distributed energy and are choosing Distributed solutions, move to a dynamically Energy Resources (DER) managed network (DSO)
Customers energy needs are Drive improvements in customer changing. Future of Metering is satisfaction and utilise usage data for unclear in Victoria beyond 2020 network and customer benefits
19 Learnings from Mooroolbark mini-grid trial
Objective: Testing a snapshot of the future electricity distribution system
14 households with solar, batteries & optimised control platform, operating as a unified and grid-interactive energy system
Customer Technical Strategic
1. Customers increase their 1. 100% renewable supply 1. The path to DSO likely to be support for distributed system achieved, with incremental, with functions energy once they have lived stable and secure operation added to address specific experience needs and value › 14% initially → 87% now 2. Network value of DER optimisation proven 2. Energy cost reduction and › Peak demand management 2. IoT energy devices support control is a key driver › Facilitates high solar uptake web-based network › Solar drives 80% of cost › Improved supply reliability integration reductions, battery drives 20%
3. Industry standards 3. Timeline to DSO may be 3. Basic energy literacy lagging technology accelerated by convergence of improves engagement levels development Government policy, community attitudes and technology
20 Gas Distribution
The Environment Our response Natural gas is cleaner (relative to grid emissions intensity) and Assessing opportunities for hydrogen provides a pathway to alternative fuels renewable gaseous fuels Influence uptake through marketing Gas commodity prices are high. and drive improvements in customer Connections are increasing (~2% satisfaction p.a.) but consumption is decreasing
More customers are using less than 30GJ 20-40 years in 2015 vs 2010 Potential conversion of 5 – 20 years entire networks
CO2 reduction to CO2 free through biogas and Next 5 years blending of hydrogen Beginning of biogas and biogas and hydrogen in gas hydrogen networks innovation & pilot projects
Source: ENA decarbonising Australia’s gas networks. December 2017. 21 ENERGY SECURITY BOARD NATIONAL ENERGY GUARANTEE RELIABLE ENERGY, REDUCED EMISSIONS AND IMPROVED AFFORDABILITY 26 FEBRUARY 2018 ENERGY SECURITY BOARD – IMPLEMENTING FINKEL BLUEPRINT & WHOLE-OF-SYSTEM OVERSIGHT
Reliable and Increased More efficient low emissions security gas markets future
Improved Rewarding system consumers planning
Stronger governance
23 ENERGY SECURITY BOARD
ENERGY SECURITY BOARD – PRIORITIES FOR 2018
Integrated System The Guarantee Plan
Strategic Priority Reserve Demand RIT-T/D response projects RERT
Renewable Energy Day ahead market Data Strategy Zones
24 ENERGY SECURITY BOARD
NATIONAL ENERGY GUARANTEE – WHAT IS IT?
Reliable Sufficient investment in dispatchable energy MWs or demand response to meet peak demand
Electricity sector delivers emissions reduction target in line with agreed Reduced emissions reduction trajectory emissions
Integration of energy and climate policy reduces risk premium on new investments Improved affordability Increased contracting in a more liquid market increases competition and reduces the level of spot prices and their volatility
25 ENERGY SECURITY BOARD
NATIONAL ENERGY GUARANTEE – TOWARDS A LOWER EMISSION FUTURE
Energy Security Board
Calculate Flexible Reporting Calculate emissions compliance and load intensity options compliance
NATIONAL ENERGY GUARANTEE – 8 STEPS TO A RELIABLE ENERGY SUPPLY
Qualifying Procurer of Forecast Update Trigger Allocation Compliance Penalties instruments last resort
26 ENERGY SECURITY BOARD
NATIONAL ENERGY GUARANTEE – NEXT STEPS
• Mid April – High-level design report sent to COAG Energy Council • Late April – COAG Energy Council meeting • Subject to COAG Energy Council approval to proceed to detailed design: Late April – High-level design report published May-June – Stakeholder input on detailed design options – working papers/workshops July – Draft final design released for consultation August – Final design to COAG Energy Council for approval Second half of 2018 – Drafting of legislation and rule changes
27 QUESTIONS?
Energy Security Board http://www.coagenergycouncil.gov.au/council- priority/energy-security-board
28 Update on regulatory environment
Presentation to AusNet Services Investor Day March 2018
Warwick Anderson General Manager Network Finance and Reporting 29 2018 Network regulation program
• Remade 2014 decisions: • AusGrid, Endeavour, Essential, EvoEnergy, JGN • Final decisions: • TransGrid, ElectraNet, Murraylink • Draft decisions: • TasNetworks, NT Power and Water, EvoEnergy, AusGrid, Endeavour, Essential • Preparation: • Energy Queensland, SAPN, Directlink, Vic elect dx
30 Developments in network regulation
• Enhanced pre‐lodgement engagement with • Consumers • AER • AER decision making process • Triage assessment – benchmarking • Issues paper • Draft and final decisions • AusNet new regulatory model trial • Consideration of demand side options ‐ DMIS
31 Rate of return guideline • Draft legislation published • Commenced under current rules • Binding guideline • No fundamental change to the underlying principles • Process so far • Consultation on process –an incremental review • Consultation groups –consumers, investors, retailers • Issues paper and submissions • Discussion papers –Risk, gearing, financial indicators, MRP, beta, gamma • Expert session 1 • Upcoming process • Expert session 2 • Submissions –4 May 2018 • Draft guideline –late June • Independent panel review • Submissions and final guideline – December 2018
32 A note on regulatory asset base • The rules are clear • Capital expenditure undertaken by regulated businesses is rolled into the RAB • Unless there is an overspend of the total capex allowance • And then only the overspend is at risk • RAB growth has moderated • Easing of demand • Capital expenditure incentive scheme • Reliability has improved • Enhanced AER performance reporting
33 Commercial Energy Services (CES)
Chad Hymas, EGM, CES CES Strategic Response Positioning the business to capture value in the new energy future
BUSINESS REFOCUS AND ASSET FOCUSED INVESTMENT BUILD AND INVEST IN OPERATING MODEL SUPPORTED BY UNIQUE NEW CAPABILITY 1. CHANGES 2. SOLUTIONS/SERVICES 3.
ASSETS LAYER SELECT SOLUTIONS PEOPLE, CAPABILITY REFOCUS & BRAND
› Reprioritised service offering › Significant focus on deploying CONTRACTED COMMUNITY › Exited non-core services INFRASTRUCTURE INFRASTRUCTURE additional resources and developing new capability
CES OPERATING INTEGRATED MODEL ASSET & SOFTWARE ENERGY DATA CAPABILITY › 4 independent businesses into a SERVICES single operating entity › Market leading software development capability › delivering across various asset SOLUTIONS & SERVICES types, sectors and customers with LAYER a clear bias toward deploying › Capitalise on renewable PARTNERSHIPS AND capital investment NEW MARKETS › Asset base of aggregated › Participate in emerging energy OUTCOMES distributed energy resources models throughout Australia and to partner with new market › Combine assets with smart › ~60% FTE Reduction entrants technologies to deliver unique ›ImprovedEBITDA Margin integrated solutions in changing › Participation in global energy › Safety index improved 80 to 115 energy marketplace start-up accelerator program – Free Electrons 35 Renewable Opportunities Across Australia Current market conditions and renewable energy targets driving significant network investment within priority national markets
State of Renewables throughout Australia State of Renewable developments throughout Victoria – a lens to the national opportunity
National policy and legislated energy targets will continue to Strong market pipeline exists to achieve $1bn and beyond drive significant investment in renewables Maximise value in Victoria where competitive advantage is Throughout Australia, project generation required to meet highest whilst actively building a significant national presence renewable targets will exceed 15000MW
36 Contracted Infrastructure FY18 Significant Wins Across the State
• Total value of new contracted projects ~$200m • Crowlands Wind Farm with Pacific Hydro • Murra Warra Wind Farm with RES Australia & Macquarie Bank • Salt Creek with Tilt Renewable • Bulgana Green Power Hub with Neoen • Deakin Smart Energy • Strong pipeline to achieve $1bn target
37 Batteries - a New Asset Class
Large batteries are critical to providing clean, affordable and reliable energy now and for many years to come
Active participation in battery projects will continually improve our understanding of their capabilities and role in the network and communities
Utility scale battery projects is something we hope to be part of in the near future
38 Deakin University Micro grid Partnership Launch
$30M Project 14.5 Hectare solar farm 7.25 Megawatt smart micro grid 1 Megawatt battery storage capacity 12,000 tonne yearly carbon emission reduction
39 Yackandandah Community Mini Grid Fully Operational
Award-winning project 14 houses with 110kWh of battery storage and over 50kW of solar panels Designed to facilitate energy sharing. Over 500kW of solar power covering more than 100 houses. 170 Ubis deployed.
Community-Engagement Award-Winning Project
40 Partnerships & Investments: Free Electrons
12 of the world’s most promising start- ups. Supported by 10 of the world’s largest utilities. Gives AusNet Services the “inside running” on the next big thing in tech and energy. Positions AusNet Services as a forward thinking, progressive organisation. Opportunity to network face to face with senior global industry leaders
41 Further information and contacts
AusNet Services is the largest diversified energy network business in Victoria, owning and operating around $12 billion of assets. The company owns and operations three regulated networks - electricity distribution, gas distribution and the state-wide electricity transmission network. The company also has a Commercial Energy Services division, focusing on unregulated opportunities, including contracted infrastructure, asset intelligence and energy services. Headquartered in Melbourne, Australia, AusNet Services employs around 2,000 people to service 1.4 million customers and is listed on the Australian Securities Exchange (ASX: AST) and the Singapore Stock Exchange (SGX-ST: AZI.SI). For more information visit www.ausnetservices.com.au
For further information contact: AusNet Services Ltd Investor Relations John Nicolopoulos Level 31 2 Southbank Boulevard Southbank Head of Investor Relations Victoria 3006 Australia +61 3 9695 6301 or +61 409 672 912
Locked Bag 14051 Melbourne City Mail Centre Media Relations Victoria 8001 Australia Sarah Ward Corporate Affairs Tel: +61 3 9695 6000 +61 3 9695 6521 or +61 447 289 452 Fax: +61 3 9695 6666 42